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Tanzania Confirms VAT On Financial, Tourist Services

by Lorys Charalambous,, Cyprus

11 July 2016

The Tanzania Revenue Authority (TRA) has clarified how value-added tax (VAT) should apply to fee-based financial services, since it was introduced on July 1, 2016, alongside VAT on tourist services.

VAT should be imposed at 18 percent on all fees raised by banks or any other financial institutions on services they offer, and should be payable by the banks, not by their customers. The agency said the banks should shoulder the increased tax burden.

In addition, TRA noted that "there has been widespread reports in social media that customer deposits will also be charged VAT at 18 percent resulting from the amendment. This is incorrect, as VAT is only levied on charges received by the bank or financial institution after rendering financial services to their customers."

The agency confirmed that it will shortly issue directives regarding the operation of the VAT regime for financial services, including how receipts should be issued and the VAT returns to be submitted by the finance industry.

In addition, it has also been confirmed that, in a similar attempt to widen the country's tax base and increase government revenue, 18 percent VAT is also being applied on tourism services since July 1 (having previously been imposed on tourist accommodation).

During his recent speech introducing the Government's 2016/17 Budget, Tanzania's Minister for Finance and Planning, Philip Mpango, had confirmed that the imposition of VAT would include "supplies of tourist guides, game drives, safaris, animal or bird watching, park fees, and ground transport services."

He noted that "this measure was put in abeyance during the inception of the new VAT Act in July 2015 in order to provide for the operators to conclude their contractual obligations entered with tourists in a year. VAT is imposed on similar services in neighboring countries like Kenya, Rwanda, and South Africa."

However, tourist operators in the country have expressed their concern at the change. Safari Bookings said that "tour operators were given only a few short weeks to implement the changes. For example, most operators are not even VAT-registered because their services were previously VAT exempt. They are therefore unable to issue VAT receipts to their clients."

The website concluded that the change "could potentially damage an industry which Tanzania relies heavily on for generating foreign exchange. Tourism is one of the main revenue sources for the country and a substantial part of the country's gross domestic product. Kenya offers substantially cheaper safaris and many great safari destinations, so a real fear is the long-term damage this could do to the industry in Tanzania."

TAGS: tax | value added tax (VAT) | revenue guidance | banking | financial services | fees | travel and tourism | tax authority | tax rates | Tanzania | services | Africa

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